The Office of General Counsel issued the following opinion on
December 4, 2006, representing the position of the New York State Insurance Department.

Re: Identity Theft Recovery Program

Question Presented:

1. Would the service as described below constitute
doing an insurance business?

2. May an insurance agent enter into a subscription
agreement with ID Company to promote and market its program in exchange for commissions?

Conclusion:

1. Yes, this program would constitute doing an
insurance business. The subscription agreement with ID Company provides a benefit of
pecuniary value from one party (ID Company) to another party (the covered members),
dependant upon the happening of a fortuitous event (identity theft and/or fraud).

2. An insurance agent may not solicit or sell
insurance policies on behalf of an unauthorized insurer.

Facts:

A licensed insurance agent is considering entering
into an arrangement with ID Company, as a subscriber to sell identity recovery program
services to the agents customers. ID Company will pay the agent a commission for
each service sold. ID Company is not licensed as an insurer in this state nor is it
licensed as an insurer in Georgia, where it is incorporated.

The service will be marketed primarily to employers,
and will provide "blanket coverage" to the employers population of
end-user clients (employees). Yearly costs, or "dues," are assessed based upon
the size of the covered population. The subscription agreement furnished by the agent
reads in relevant part: "Upon duly [sic] notification of an identity theft of a
Covered Member, [ID Company] will perform for the Covered Member any and all of the
Services of the program for which he or she is enrolled under, which are described in
Exhibit A attached hereto."

Exhibit A contains an overview of the service, which
includes two components. The first involves credit monitoring assistance. ID Company will
assist members in obtaining federally mandated free credit reports, deliver these credit
reports, and provide assistance in reading and understanding credit reports. The second
aspect involves identity theft and fraud, and consists of two phases. Preliminary to the
first phase, a customer that believes he or she is an identity theft victim will initiate
contact with ID Company, which will then initiate a pre-screening process. Next, ID
Company will begin the initial phase of the fraud investigation by attempting to ascertain
the circumstances and nature of the fraud, and by providing the customer with support and
advisory information. Phase two relates to the more advanced investigative and preventive
stages of the service.

Analysis:

N.Y. Ins. Law § 1101 provides in pertinent part:

(a)(1) "Insurance contract" means any
agreement or other transaction whereby one party, the "insurer", is obligated to
confer benefit of pecuniary value upon another party, the "insured" or
"beneficiary", dependent upon the happening of a fortuitous event in which the
insured or beneficiary has, or is expected to have at the time of such happening, a
material interest which will be adversely affected by the happening of such event.

(2) "Fortuitous event" means any
occurrence or failure to occur which is, or is assumed by the parties to be, to a
substantial extent beyond the control of either party.

(b) (1) Except as provided in paragraph
two, three or three-a of this subsection, any of the following acts in this state,
effected by mail from outside this state or otherwise, by any person, firm, association,
corporation or joint-stock company shall constitute doing an insurance business in this
state and shall constitute doing business in the state within the meaning of section three
hundred two of the civil practice law and rules:

(A) making, or proposing to make, as insurer,
any insurance contract, including either issuance or delivery of a policy or contract of
insurance to a resident of this state or to any firm, association, or corporation
authorized to do business herein, or solicitation of applications for any such policies or
contracts;

(B) making, or proposing to make, as warrantor,
guarantor or surety, any contract of warranty, guaranty or suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the warrantor,
guarantor or surety;

(C) collecting any premium, membership fee,
assessment or other consideration for any policy or contract of insurance;

(D) doing any kind of business, including a
reinsurance business, specifically recognized as constituting the doing of an insurance
business within the meaning of this chapter;

(E) doing or proposing to do any business in
substance equivalent to any of the foregoing in a manner designed to evade the provisions
of this chapter.

The "identity recovery program" under
proposal here constitutes doing an insurance business. Each member will pay a yearly
"due" in return for ID Companys promise to provide its services to
members employees in a blanket coverage manner. The fortuity element is present in
the fact that the service is only rendered upon the occurrence of an actual theft or
fraud. Such a triggering requirement is evidenced by the fact that upon notification by a
member, ID Company will commence a pre-screening process in order to determine whether to
proceed with an investigation. The services depend entirely upon the occurrence of an
identity theft.

N.Y. Ins. Law § 1102 prohibits an unauthorized
insurer from doing an insurance business in this state. N.Y. Ins. Law § 2117 prohibits a
person, firm, association or corporation from acting in this state as an agent or broker
for, or otherwise aiding, an unauthorized insurer. Because ID Company is not authorized as
an insurer in this state, it may not sell this program in this state. Similarly, any agent
or broker that acts for or aids ID Company in unlawfully soliciting or selling insurance
in this state would violate the Insurance Law.

As a final note, while the crux of the agreement
appears to run to the identity recovery portion, the credit monitoring assistance portion
may be a permissible arrangement if severed from the agreement and contracted for
separately. The rendering of this service does not appear to depend upon the occurrence of
any fortuitous event. To the extent that this is correct, this particular service is not
insurance, and the insurance agent may market this product.

For further information you may contact Principal
Attorney Paul A. Zuckerman at the New York City Office.